UK is entering the summer months. The vaccine roll-out had the impact needed to push COVID-19 off the news agenda. As the economy moving once more, the private equity market remains strong. Not only is there a huge pent-up demand but also debt markets remain positive. The global private equity market is now worth over $4 trillion1. The UK, long the most developed private equity sector in Europe.
COVID-19 has been one of the biggest challenges ever to confront the economy. For businesses, both large and small, government support has been available. Today the cash flow looks stronger, the rollback of government support will start. Potential changes to capital gains tax are also beginning to focus the minds of many business owners. Public ownership has fallen out of favor as an exit strategy, for many. The beneficiary of a trend that has been happening for over a decade, is the private equity.
There is a lot of opportunities for investment and acquisition. In global M&A activity in Q1 2021 this has been already demonstrated. The portfolio of investments within a fund have been managed through the pandemic. PE firms themselves have faced their own unique issues because of this pandemic. Active transactions back in March 2020 was stopped due to the break of funds. Triage assessment was then the main target. Many sponsor-backed companies struggled to access government-supported schemes. The typical private equity investment structure using quasi-equity debt instruments to fund investments being the root cause.
Many PE firms are adapting and keen to point to their funders’ patience and understanding. And there were opportunities to acquire some assets cheaply. This is because of failure of some corporates in the post-pandemic market. They are without a doubt entering uncharted territory. Like all other markets, private equity needs to negotiate the current economic crisis, caused by the pandemic.